Australia’s real interest rate among the lowest in the G20 club of major economies

New data shows the central bank’s interest rate setting remains among the “softest” interest rates in the G20 club of major economies, even after 13 increases that have strained borrowers.

The official cash rate stands at 4.35 percent, while the country’s real interest rate, adjusted for the impact of rising prices, is 1.55 percent.

Australia is in line with the European Union, with only four countries in the Group of 20 lower, according to an analysis of new Bloomberg data.

The United Kingdom (3.3 percent), the United States (2.6 percent) and Canada (2.15 percent) are higher.

Real interest rates give a clearer picture of how tight the Central Bank is keeping the reins, as they eliminate the effect of cash depreciation over time. High inflation harms lenders by reducing the purchasing power of the money borrowers repay.

Homeowners have felt the increase in inflation in many ways; Real wages fell, but house prices rose rapidly for a time, fueled by urgently low interest rates. While rates were raised, employment remained stronger than many commentators expected.

Moody’s Analytics economist Harry Murphy-Cruise said the RBA had been more cautious than elsewhere about raising interest rates and was focused on keeping the economy at full employment.

But he warned that comparisons between countries were difficult due to Australia’s higher share of home loans with variable interest rates.

“This is being felt very quickly by a larger proportion of the population,” he told The West Australian.

“The RBA gets more bang for its buck with every increase.

“Homeowners are the ones who carry the heavy burden here.”

The Central Bank’s board of directors met on Monday ahead of the official cash rate decision to be announced on Tuesday.

The latest data tracking the market shows traders are giving only a 5 percent chance of a rate cut.

Two economists have warned in recent days that the RBA may wait much longer than expected to cut rates.

Warren Hogan, chief economic adviser at Judo Bank, said the central bank likely won’t change in the near future, possibly until late next year.

“We now expect the RBA to remain on a ‘long hold’ throughout next year,” Mr Hogan said.

“With inflation remaining above the RBA target and the labor market being beyond full employment, we see no compelling reason for a rate cut.”

But the chances of an increase are less than previously thought, he said in a research note on Monday.

He said September inflation data showed price increases had “slowed sufficiently to allow the RBA Board to remain patient”.

HSBC expects interest rates to fall in the second quarter of 2025. Still, rate cuts “will never happen,” chief economist Paul Bloxham wrote in a note Friday.